Who pays past HOA dues in an REO?
Submitted by catherine
from CA
- 08/05/2009 - 10:10pm
Buyer is purchasing a bank owned home. No lien was ever filed for the back delinquency. HOA is saying new owner is responsible, all the laws we've read say no. HOA would have to persue the previous owner. Buyer is calling an attorney, but looking for experience on this matter. Thanks.
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Hi Catherine,
I'm a Realtor and I list and sell REO properties in Southern California, and to my knowlege you are correct, the seller is responsible to pay the back HOA dues, and if they failed to, the new owner is NOT responsible. The HOA has legal recourse to go after the prior owner for any dues assessments that occurred when that person/persons owned the property. NOTE HOWEVER, it all depends on what the purchase contract says. The standard purchase agreement says seller is responsible to pay the HOA dues current at the time of closing (as well as any delinquent property taxes or other liens) and that title will pass free and clear to the buyer.
I am very confused how this could happen. If the buyer received a title insurance policy at the time of the purchase, which they would HAVE TO if the purchase was financed, then the title insurance company would not have let the sale close without the delinquent HOA dues (including late fees, etc.) being paid off in full at the time of the closing.
If the buyer looks through their escrow documents they should most likely have a title insurance policy, and by contacting that company the buyer should be able to find out what the heck happened.
Your purchase agreement should have contained verbiage stating that title would be passed free and clear to the buyer, and that HOA dues and property taxes would be PRORATED TO THE CLOSE OF ESCROW. If the seller failed to pay a delinquent amount, they may have been in breach of the contract, unless the seller's addendums contained language to negate the seller's responsibility to pay these items current as of the closing date. I have not heard of any REO sellers doing this, although I suppose it is possible.
You can start with contacting escrow and the title company to find out who screwed up, but if the HOA is dead set on pursuing the buyer for unpaid HOA dues, you want to deal with this head-on ASAP. It probably would be wise to get an attorney. Perhaps you can get one to simply write a letter to the HOA for a couple hundred dollars, and such an action may be enough to get them off the buyer's back without any further action and without any significant expense.
Good luck!
--David Santucci
--David Santucci
Nice post David, thank you. I'd only add that you need to separate the fees into 3 separate time periods:
1. Before the auction occurs - the prior owner is responsible for this, and any claim the HOA has was wiped out at auction. Some HOA's claim this isn't true and think their fees are super-senior. That is possible in some states, but I don't believe it is in CA.
2. Between the auction, and the transfer to the new buyer - the lender (or seller) should be responsible for this period of time, though you could agree to whatever you want in the purchase agreement.
3. The period after the resale - here the new owner is clearly responsible.
As David said, I'd start with the title co. If the HOA is coming after you and you got title insurace I believe they will actually work to resolve the issue on your behalf as that is what title insurance is for - protecting you from unwarranted claims on title.
Is the same true if you could not short sale and the property was lost in forcosure?
My property was in So Cal and the HOA has put me into collections after the forclosure.
Hi Doug,
The HOA can pursue collection from the prior homeowner after the foreclosure. The lien for delinquent HOA dues may be wiped off the property but it can be collected as a personal debt against the prior owner.
I am still confused in reference to HOA responsibilities in REO sales.....does the new buyer have to pay back HOA fees yes or no
I am still confused in reference to HOA responsibilities in REO sales.....does the new buyer have to pay back HOA fees yes or no
The past due HOA dues should all be addressed in escrow. The title company will issue an owners policy that insures you have clear title which includes making sure there are no back HOA dues that are owed. That said, when you are in escrow the HOA may be trying to collect back dues from the lender and the lender may refuse to pay (rightfully so since the past due dues are the responsibility of the previous owner). We have heard of cases where the buyer has agreed to pay the past due dues so that the escrow can close if that is the only thing that is holding up the escrow. This may be the reason this topic seems so confusing.
You're assuming there was an escrow and title company involved, however, in low market rate transactions, like short sales, this is typical with an investor buyer. When no escrow/title is involved, there is no contract guarantee for clear title and when there is no foreclosure nothing is "wiped out".
@Valley -- I am not assuming anything of the sort, at least not without good reason. The original post stated this was a bank owned property. Not a short sale. Bank owned means there WAS a foreclosure--or at the very least, a deed in lieu of foreclosure, which is rare enough we can safely assume it was a foreclosure. The poster's name says she's from California. And I am not aware of any loan servicers who sell REOs in California without using title and escrow.
Regarding your other comments, any cash investor who would purchase any property--ESPECIALLY a short sale--without title insurance, has got far more money than brains. I have known plenty of cash investors and I have never met a single one who had an aversion to using an escrow company, and I have never met one who would be foolish enough to purchase real estate without title insurance. So I really don't know what kind of cash investors or transactions you're talking about. Just because someone doesn't have to get title insurance to get a mortgage loan, that doesn't mean they don't still get title insurance to cover themself. (Unless they're someone with an invincibility complex and a high need for extreme risk taking. In which case bungee jumping would be a much safer thing to do and probably more fun too.)
Just my opinion, and speaking from my experience... Maybe folks in other states do things differently that what I see here in California.
Regarding back HOA dues:
Go to the Recorder's Office and track down the CCRs for the HOA, or use the CCRs that were provided in the transaction.
In California, banks will not loan on any property inside a condo/HOA complex where HOA dues survive a foreclosure by the bank. Therefore, CCRs clearly state that all deliquent assessments are wiped off (the property, not previous owner) by a foreclosing lender. The HOA can record a lien for back assessments (Notice of Assessment), but usually that is recorded to notify title/buyers for a future normal purchase transaction that has title and escrow.
If the lien (or back dues) occur AFTER the foreclosing trust deed (which they all do, because the prior owner went through title/escrow 99% of the time), then it is wiped off the property. It can stay recorded against the prior owner, but it is not a title hindrance on the property.
So, at the point of foreclosure auction date, back dues are wiped out. The new owner (foreclosing REO bank) becomes responsible for dues from that point forward. So any dues owed after that need to be worked out through escrow when you purchase an REO. If someone purchased an REO and it went through escrow/title, then the escrow company missed it and the REO Bank seller should have paid them. If there was a clause in the purchase agreement that said buyer would pay all back HOA dues, then that would be an exception to normal practice.
Hope this helps
I have a question regarding FHA 15% HOA delinquencies in a complex. I'm trying to purchase a townhome in a small complex, 11 units. Two homeowners are delinquent, making it 18%. One owner is in short sale and the other is negotiating their past due fees, but the HOA director doesn't know when this will be resolve. My question is simply, can either one of the owner's past due fees be paid and brought current in order for the 15% to be met and the loan to close?
Would love to hear suggestions and solutions. Thanks.
Hi Denise,
I just consulted with a loan officer that specializes in FHA financing and she told be that if one of them pays the past due fees and is brought current the project will qualify.
I am a first time REO buyer. Who is responsible to disclose the DOLLAR AMOUNT to be paid for HOA assessments? And do the sellers even have to state the amount during negotiating? During the escrow process the escrow company found about $1,900 in past dues. However, I was not aware of that dollar amount until escrow and now waiting to close, but I, the buyer, have to pay these assessments before closing. Shouldn't that amount have been in the purchase agreement when the seller was negotiating? Or are HOA past dues many times unknown? Instead of waiting for escrow to notify me of these unpaid fees, who responsible besides escrow to find out the amount? Real estate agent? Seller?
Hi Olivia,
When you are buying a REO (Bank owned) property you are not responsible for the past due HOA dues. In fact the bank is not responsible for them either. In most cases past due HOA dues are wiped out by the trustee sale. If you are buying a Short Sale (not bank owned) that could be a very different situation since the HOA dues would need to be paid and the lender who is accepting the short payoff may not be willing to cover those dues and the seller undoubtedly does not have the ability to pay. Consult with your agent so that you have a clear understanding why you are being forced to pay these past due dues. Once you understand the situation you can make an informed decision as to whether or not this is a deal breaker and you are willing to walk away from the sale.
Finally, someone who has it right!
@ David Santucci (because it's appears that you really know what you are talking about in this confusing time)
In reading the posts regarding past HOA dues in CA, I am trying to figure out where I stand. I am the "bad guy"/prior owner of a condo that went to foreclosure, not be my own choice but that's another book...
My question is: My HOA did file a lien prior to foreclosure. The bank refused 4 very nice short sale offers and decided to sell it at auction for less. Did they assume that lien with my past HOA dues? Several people have said the bank is now responsible and other say nay, and of course the collections letter sent by HOA says they are entitled, but who do I believe now. Would you please offer me a bit of advice.
Thank you in advance,
Maria
Hi Maria,
A homeowners association lien is filed when dues become delinquent. This lien is typically filed after the Deed of Trust because a bank would not loan money on a home unless the HOA dues were paid current. When the bank forecloses on the property they must pay any senior loans or liens but that does not include HOA dues. The lien for he HOA does is typically wiped out and the lender is only obligated to pay the dues from the date of the Trustee Sale when they became the owner. We have seen (on RARE occasion) when the past due dues are paid when the bank resells the property but this is VERY rare.
The HOA could pursue collection of the past due dues from you if they are not paid.
Thank you Michelle, I'm sorry I didn't respond sooner, I did not realize a comment was posted. I was lucky enough to have my dues forgiven by my Board. I wrote them a very apologetic letter and begged for mercy. I served on the Board for 5 years and hoped they would show leniency. Thankfully they did. Understanding and accepting my culpability was crucial in knowing how to proceed.
Thank you kindly
So, if an investor purchases the property from the auction(California is non-judicial) the past HOA dues are wiped out? They are only responsible from date of trustee sale purchase? When the resell the property the lien that was filed on the property doesn't become an issue for the resale? Thanks
So, if an investor purchases the property from the auction(California is non-judicial) the past HOA dues are wiped out? They are only responsible from date of trustee sale purchase? When the resell the property the lien that was filed on the property doesn't become an issue for the resale? Sorry for the double post but i entered the wrong email address...
Thanks,
Hi Offthefront66,
HOA's are typically NOT pre-liens like property taxes. A lender will not fund a loan if the HOA dues are delinquent. The past due dues are then wiped out at trustee sale since they are "junior" to the Deed of Trust. The previous owner may still be responsible for the past due dues but the new owner or lender is only responsible for the dues from the date of the purchase forward.
There have been numerous cases where an aggressive HOA has held up a sale on this issue. I have even seen buyers agree to pay just to get a sale closed. You would want to make sure you are working with a title company that is willing to insure around this issue if you are unable to get a HOA demand that does not include the past due amount.
Very helpful information, thanks for the good discussion.
We have a home in our HOA that was foreclosed back in May, and is now being sold from the bank to a new homeowner. The realtor who sold the property, is telling us that we have to supply a copy of our ledger before the bank will pay the outstanding dues.
I understand, from the above discussion, that they only have to pay any dues and fines since the house was foreclosed. Is this "ledger" request, just a tactic to get us to drop collecting the dues? Can they demand such a condition, before they pay?
Thanks,
Cory
Chances are they are looking for something in writing so that they can determine what they owe based on the dates. That way they can clearly define what they see as the amounts they need to pay NOT the total amount you show on the books from the previous owner.
I have this same situation in a Michigan foreclosed condo that I purchased last summer. We paid cash and the bank paid past dues for the three months that it owned the condo when we closed. The HOA just sent me a bill for $1100 saying the original owners owed dues and that a lien was placed on the property before the foreclosure. This was never noted at our closing. We have title insurance - is this covered by them? Do I need a lawyer? I have 30 days to pay according to them before legal action is taken. What the heck?
Hi D,
You have an owners title policy that protects you. Contact your title insurance company and refer the HOA to them. I am not familiar with Michigan laws but the whole purpose for an owners title policy is to protect you from any prior liens or loans on the property. This is a prime example of why you always want to have a title policy when you purchase a property.
Thank you - I contacted the title insurance company and they are investigating it.
We hope that you will come back and give us an update!
I have not heard anything from the lawyers or title insurance company - I assume it could take a while.
Hi DK,
Yes, it likely will not be resolved quickly but you can always follow up with the title insurance company for an update.
Hi, I am a homeowner and I was just recently approved for a home modification loan, but now the HOA served my husband and I papers to collect back HOA dues. I am seriously behing on HOA dues and I can not retain an attorney like the HOA has and I don't know where to start. We were told to submitt a letter requesting payoff amount, but in doing so I want to make sure I don't say something I shouldn't being that I do not have legal advice as the HOA does. Do you have any sample letters or advice. Hopefully I have been clear on what I need here. Thank you
Hi Rebecca,
The HOA dues are still outstanding regardless of the loan modification. Keep in mind that the laws regarding HOA's very from state to state. In CA the HOA can file a lien and foreclose on the property just like a lender. It is unlikely that a HOA would accept a reduced payment on what is owed since they are dependent upon the dues for the services provided to the association members and cannot afford to take such a loss.
Although we do not have any letters and cannot provide legal advice it would probably be in your best interest to come up with a payment plan where you are at minimum paying the current dues and then agreeing to pay a monthly amount toward the past due balance.
I have just been discharged from a bankruptcy filing and I owned 2 properties. I surrendered the Condo in the proceedings and will keep the SFH. I was told that the lender will eventually forclose on the Condo and the process will take its routine time..... I am concerned about the accumulating HOA dues, since I have not been paying them for the past 7 months. BOA is the Lender and until the property goes into Trustee Sale, the HOA dues are accumulating........ I called BOA and informed them that since the condo is vacant I don't want to be liable for it and also the HOA dues. They told me they will send their Forclosure Tech to secure the property and that they will be responsible for paying the HOA..... So, I asked them to email me this confirmation, but todate they did not. I stopped by the condo to make sure all is OK and they have not secured it, ie. changing the lock.......etc. Then I got this afternoon a call offering me a Loan Modification and I explained that I can't aford to keep 2 properties, he asked me to sign an OPT OUT LETTER. My question is what can a homeowner who had filed bankruptcy and is unable to pay the past due HOA do????
We purchased a PUD in Orlando, FL. The bank had foreclosed on it on 05/2009, then the bank sold it to us in 12/2009, now the HOA is trying to collect the back HOA fees prior to May of 2009. From what I know we are only responsible from June of 2009 to Dec. of 2009, am I correct on this? Please reply
Thank you
Hi Seda,
You need to contact your title company. They should be able to resolve this for you.
I am having this same problem. I purchased a HUD condo 1 yr ago & have been harrassed by the HOA for non payment of fees since I moved in. I finally contacted an ATTY. as i pay my fees every month & had him forward my proof of pymnt, as I had attempted to do several times dueing the year , but was ignored.. The HOA also ignored the atty's letter as well !! I finally contacted the Assoc. Pres. & she stated that she had no record of me being past due. After speaking with him again, he stated that the fees were owed by a previous owner. I reminded him that the previous owner was HUD & that per closing atty, all fees were paid. He advised me not to worry about it as he told his bookeeper to " get rid of it ". The following week we received notice that the HOA was fired for embezzlement. I also found out the Assoc. Pres. was getting a kick back. I will bring this up if necessary, as she was in on it too. I also spoke w someone who had this HOA at another condo & she went thru the same thing. We now have a new HOA & I am waiting to see what happens. I am also a realtor & an investor ( He didnt know this ) and know that this is a popular tactic w unscrupulous HOA's for aquiring proprties cheap. They put you into foreclosure & own the property then sell it for a profit. It's known as " legally stealing a property ". They usually target properties w alot of equity ( like mine ). This is happening all over right now. Do not take any HOA's word for granted. A bank cannot knowingly loan money on a property w/o clear title. If a HOA says you have to pay previous owners dues, contact an Atty & demand proof..
We are in the process of a short sale on our home in michigan. We are 4 years back due on association dues. Now that we have sold the house, I am assuming we will have to pay before closing, which I am trying to fight and have not paid because nothing is done in the sub and we were told the association was done and it was turned over to the city. I am seeing online there are several states that have limits on back due assoc dues?? is this correct in Michigan or no?
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